Exports key to U.S. automation industry

By Daryl Delano

The automation, measurement, and controls industry outlook is positive in the U.S., even as economic growth shows signs of moderating.

Having reached the mid-point of 2006, the U.S. economy has largely lived up to the moderately optimistic expectations we had for it at the start of the year. 

However, the measurement and control (M&C) instruments industry has performed a little bit better than we could have realistically hoped for, given the range of potential challenges identified early on. 

The consensus outlook is U.S. gross domestic product (GDP) growth for the balance of 2006 will moderate to a pace closer to 3%.

Worldwide economic growth, on the other hand, has been accelerating in recent months and will likely hold up well during the second half of the year-a boon to the export fortunes of U.S. manufacturers of M&C instruments. 

Automation market trends

Although the hard data we have in hand at mid-year gives us a definitive reading on M&C industry trends only through the first-third of 2006, the numbers have been looking very strong.  

The U.S. Commerce Department estimates the value of new orders received by all U.S. manufacturers of M&C instruments increased by 3.5% between February and March, and by another 2.8% during April.  

For the first four months of 2006, industry orders were running 6.4% ahead of the January-April 2005 total. Moreover, actual product shipments were even better-8.2% stronger over the first-third of 2006 than over January-April of 2005. 

This represents a big improvement over last year's experience; the value of M&C instrument shipments from U.S. manufacturers increased by a scant 0.8% between 2004 and 2005.

Indicators of international M&C industry activity over the early months of 2006 were equally as good. The estimated trade volume of M&C instruments either imported by U.S. firms or exported by U.S. equipment manufacturers totaled $28.9 billion during 2005, a level little changed from the year before. 

However, this volume picked up dramatically over the early months of 2006. The Commerce Department estimates the U.S. imported $3.22 billion worth of control instrument product during the first quarter of 2006.  

In addition, industry exports were worth an estimated value of $4.52 billion during January-March of this year-about 16% more than in the first quarter of 2005. This points to a big turnaround in the making, especially on the export side of the ledger.

The market strength was apparent as well in the payroll numbers reported by American M&C instrument manufacturers. Labor Department surveys showed total process control industry employment was up a solid 7.3% between April 2005 and April 2006.

Although industry jobs have been expanding steadily during the past two years, the pace of expansion picked up steam during the first-third of 2006. 

Despite clearly healthy labor market conditions in the industry, wage inflation still shows no sign of accelerating. Therefore, U.S. M&C manufacturers, to this point, have seen only modest increases in their cost of doing business, even as end-market demand continues to show evidence of strengthening.

Summary outlook

As we move into the second half of this year, it continues to look as if full-year 2006 GDP growth in the U.S. will be of about the same 3.5% magnitude as that registered during 2005. 

Worldwide economic growth now looks like it will approach 5% for the year, a bit better even than the estimated 4.7% increase recorded between 2004 and 2005.  

This will continue to create good export opportunities for M&C instrument manufacturers. Early-2006 trade numbers suggest U.S. companies are successfully pursuing these opportunities.

Barring an unforeseen and unforeseeable combination of weather, geopolitical, and/or terrorist-induced crises, neither a U.S. nor global recession will be a serious concern until later in the decade.


Daryl Delano (ddelano@adelphia.net) is an economic analyst and forecaster. He is president of Delano Data Insights and writes and edits the quarterly Measuring Markets newsletter for the MCAA (www.measure.org).